Focusing aid on Africa’s own priorities

When the government of the African island nation of Madagascar decided last year to apply for assistance under the US’s new supplementary aid programme, the Millennium Challenge Account, it chose to break with standard practice. Instead of simply asking government ministries to suggest potential projects, the Malagasy authorities consulted civil society groups, local businesses and farmers’ associations. They encountered two recurrent complaints from farmers and small-scale businesspeople: that it is very difficult to get either bank loans or official titles to land.

The report of the UK Commission for Africa provides “major boost to international dialogue on policy and actions in support of Africa,” says UN Under-Secretary-General Ibrahim Gambari.

Photograph: UN / Evan Schneider

So when Madagascar submitted its proposal to the US in October 2004, it centred on the problems of rural people. Six months later, Madagascar became the first country anywhere to gain approval for funding under the US programme, to the tune of nearly $110 mn over a four-year period.

The strategy, said President Marc Ravalomanana at the April 2005 signing ceremony in Washington, DC, is Madagascar’s own. “This is a vision which aims to strengthen the rural communities, to build industries and commerce suitable to the rural areas and then to create economic growth from the bottom up.” He noted that 13 million of Madagascar’s 17 million people live on less than one dollar a day, and that many of them live in the countryside. By strengthening rural incomes, Madagascar will be able to reduce its very high poverty rate, one of the key targets of the Millennium Development Goals (MDGs) adopted by world leaders in 2000.

Madagascar’s development strategy focuses on rural areas, and donors have agreed to support that priority.

Photograph: World Bank / Yosef Hadar

The decision of the Millennium Challenge Corporation, which administers the US aid programme, to back Madagascar’s strategy reflects a broader trend among the world’s largest donor countries. Despite some hesitancy and half-steps, the US, UK, France, Belgium and numerous others have pledged not only to give significantly more aid to Africa in the coming years, but also to increasingly aim that assistance at the MDGs and other development goals identified by African countries themselves.

It is the beginning of a “more positive relationship between Africa and the West,” former South African President Nelson Mandela said during a visit to the US in May. But much more needs to be done, he added. “The US and other donor nations should provide substantially greater economic assistance on terms that are more flexible and responsive to the priorities set by Africans themselves.”

No longer ‘unrealistic’

The shift in donor practices, after nearly a decade of declining aid to Africa, has picked up considerable momentum this year. In January, the UN Millennium Project called for doubling aid to the world’s poorest countries, to enable them to take stronger steps towards achieving the MDGs.

Then in March, the Commission for Africa, chaired by UK Prime Minister Tony Blair, advanced a similar notion. Its report argued that for Africa to be able to make essential investments to improve economic growth and the lives of its poorest people, it will need an additional $25 bn in aid by 2010, or twice the current level. In order to use that aid effectively, said the report, African countries must strengthen democracy, combat corruption and enhance performance, as projected under the African Union’s development framework, the New Partnership for Africa’s Development (NEPAD). Meanwhile, donors should do their part to “significantly improve the quality of aid and how it is delivered,” while also opening their domestic markets to goods exported by Africa.

UN Under-Secretary General and Special Adviser on Africa Ibrahim Gambari welcomed the report as “a major boost to international dialogue on policy and actions in support of Africa.” He noted that when NEPAD was first adopted by African leaders in 2001, it estimated that the continent would need about $64 bn a year in external resources, a figure that “was derided as unrealistic.” But if donors follow through on the recent calls to double aid, total assistance would climb to about $50 bn a year. And if the Commission for Africa’s proposal for an additional increase of $25 bn after 2010 is accepted, that would bring the total to $75 bn a year.

Then in April, the World Bank and the International Monetary Fund (IMF) threw their own significant influence behind the calls for more aid. In a joint Global Monitoring Report, the two international financial institutions argued that official development assistance (ODA) “must at least double in the next five years to support the MDGs, particularly in low-income countries and sub-Saharan Africa.” The report added that the pace of the increase in aid should be “aligned with recipients’ absorptive capacity,” that is, their ability to use the funds effectively. It also noted that a “big push” of aid will not be the sole answer, but must be accompanied by trade reform and other policies promoting private capital flows, technology transfer, security and environmental protection.

Africa has made considerable progress in recent years, says World Bank Vice-President for Africa Gobind Nankani. This has been reflected in greater economic growth in a number of countries, “stronger ownership” of the MDGs and action by the African Union to combat rural poverty and hunger and promote peace, regional integration, infrastructure and agriculture. But since the continent still lags far behind in achieving the MDGs, Mr. Nankani adds, Africa’s own endeavours need to be complemented by “a bold international effort.”

That point was also emphasized at the annual meeting of African finance ministers in Abuja, Nigeria, in May, devoted specifically to the MDGs. Mr. K.Y. Amoako, executive secretary of the UN Economic Commission for Africa, which organized the meeting, stated: “We need to see significant progress from leading developed countries toward meeting their existing [aid] commitments, as well as helping to accelerate progress by concretely contributing to Africa’s MDG financing needs.”

According to Prof. Wiseman Nkuhlu, chairman of the NEPAD Steering Committee, that African plan will itself “be judged by progress towards the MDGs.” With Africa’s partners pledging to do more, “The potential for genuine change has never been greater.”

The road is not likely to be straight or smooth, however. Although the European Union has endorsed Mr. Blair’s call for doubling aid to Africa, he encountered reluctance from the US during a June visit to Washington to prepare for the summit meeting of the Group of Eight (G-8) industrialized nations in Scotland, in July. US President George Bush did not agree to a doubling of aid to Africa, although he did pledge to provide the continent with an unspecified amount of “additional resources,” as well as support for fully cancelling Africa’s debt to the World Bank and the IMF.

A bigger slice of a bigger pie

Since the Millennium Summit in 2000, overall aid to Africa has been rising. The turn of the century marked an end to the decade-long decline in ODA flows to the continent. By 2003, the last year for which accurate estimates are available, total net ODA disbursements to Africa had climbed to $26.3 bn, reported the industrialized countries’ Organization for Economic Cooperation and Development (OECD), in its annual Development Cooperation Report, released in April.

That was 68 per cent higher than the amount Africa received the year of the summit, a remarkable increase in such a short time (see graph). The amount is expected to increase further in the coming years. According to projections based on the pledges of the 22 donor countries belonging to the OECD’s Development Assistance Committee (DAC), donors will give a total of $88.4 bn in aid worldwide by 2006, some $19.4 bn more than in 2003. If sub-Saharan Africa keeps its current share, that will mean billions more for the region.

Moreover, the continent’s slice of the total aid pie has been growing. In 1997–98, sub-Saharan Africa received 35 per cent of net ODA disbursements by the DAC countries. By 2002–03, this share had climbed to 41 per cent.

To some extent, the greater donor focus on Africa has come because of progress in other regions. In 2003, net aid to India fell below $1 bn, the lowest level since the 1970s, thanks to stronger economic growth and advances in reducing poverty there. Aid to China was down by two-thirds from the early 1990s, while Thailand, once a large recipient, for the first time repaid more on concessional aid loans than it received.

A number of donors have also chosen to target more of their aid towards low-income countries, and in the process Africa has become more central. Canada, for example, has announced that it will double its overall aid levels by 2010 and to Africa by 2008–09. In April, it added that these allocations would be focused more tightly on just 25 countries, chosen on the basis of their poverty levels, their capacity to use the aid effectively and Canada’s own ability to have an impact. Of the 21 countries already selected, 14 are in Africa. “This shows that Canada sees the struggle against poverty as important,” commented Canada’s Ambassador to Burkina Faso Denis Briand. “And a good number of the least developed countries are in Africa.”

Already in 2002–03 seven of the DAC countries were giving half or more of their overall aid to sub-Saharan Africa. Although the US allocated only 36 per cent of its aid to Africa in 2003, it was the largest single donor in absolute terms, providing nearly $4.6 bn that year. France, which gave 58 per cent of its aid to the region, came in second at $2.4 bn.

But on closer inspection…

While welcomed by many Africans, the increase in nominal aid flows to Africa is not, in reality, as dramatic as it appears. According to DAC rules, donor countries may report debt relief as part of their aid disbursements. For sub-Saharan Africa specifically, total debt forgiveness rose by $4.3 bn between 2001 and 2003. Even though such debt relief helps countries save money that would otherwise have been paid out to creditors, it does not represent tangible new inflows, despite its impact on the aid statistics.

“At the time such loans are written off, they are counted at full face value,” explains DAC Chairman Richard Manning. “It does not reflect a real transfer of resources.”

Emergency relief assistance, which is also counted in the ODA figures, has likewise increased in sub-Saharan Africa. Between 2001 and 2003 this portion of aid rose by $1.6 bn. If debt relief, emergency assistance and a small increase in food aid are excluded, according to DAC calculations, sub-Saharan Africa received only $600 mn in additional money for development purposes in that period.

Poverty remains widespread across Africa, and a consensus is developing among donor countries and institutions that the continent needs much more support.

Photograph: Associated Press / Obed Zilwa

Of the aid that is provided, how much is targeted towards areas that would help tackle the MDGs? The OECD report examined the actual allocation of donor assistance to sectors that might advance the MDGs. It found that only 8.1 per cent of total ODA, or 12.7 per cent of the aid disbursed by sector, went to those priorities in 2002.

An especially striking finding was that aid for water supply and sanitation has actually been declining, despite the MDG emphasis on expanding access to clean water and sanitation. Globally, the share of aid for water within bilateral donors’ sectoral allocations fell from 9 per cent in 1999–2000 to 6 per cent in 2001–02, bringing bilateral commitments, in real terms, to their lowest level since 1985.

The ‘metric’ for measuring success

“The increase of aid to finance MDG needs in the poorest countries to date has been modest,” outgoing World Bank President James Wolfensohn observed in a note to the annual spring meeting of the World Bank and the IMF in April. “We must not lose sight of the target of increasing aid to help countries meet the MDGs,” he emphasized. “That is the metric against which to measure success or failure.”

While all donors need to target more assistance towards activities that can reduce poverty, increase school enrolment and make progress on other MDG targets, the World Bank and IMF should better tailor their own policy interventions to reflect national priorities, the two institutions said in their Global Monitoring Report.

To date, 33 sub-Saharan countries have adopted Poverty Reduction Strategy Papers (PRSPs) supported by the World Bank and the IMF. Some African critics have noted that these incorporate a number of the market-driven policies that featured prominently in the old structural adjustment programmes of the 1980s and 1990s. But now the two international financial institutions agree that the PRSPs should reflect the MDGs “more centrally” and that their own assistance should be in “alignment” with the MDG framework.

To build momentum for the MDGs, especially in Africa, the report recommends significantly “scaling up” human development services such as education, health care and water and sanitation. With funding from both national governments and external sources, says the report, Africa will need to triple its current number of doctors, nurses and community health workers by 2015.

Touching on one of the priorities of NEPAD, the report also notes that investment in physical infrastructure — water facilities, roads, railways and communications systems — will have to increase over the next decade from the current annual level of about 4.7 per cent of gross domestic product to 9.2 per cent. That will require about $20 bn in yearly infrastructure spending, with about $10 bn coming from additional external financing. The private sector can play a role, notes Mr. Wolfensohn. But he adds that “the bulk of the increase in infrastructure investment, particularly in sub-Saharan Africa, will need to come from the public sector.”

Building capacity

For a long time, donors expressed reluctance to give greater aid to Africa because of concerns about corruption and the limited capacity of African institutions to effectively use more aid. But with greater action to combat corruption in an increasing number of African countries, those concerns have lessened somewhat.

Some donors are also viewing the issue of capacity in a different light. The World Bank/IMF report asserts that given current progress in institutional reform, sub-Saharan Africa “could effectively use a doubling of aid over a five-year timeframe.” And where capacity still falls short, a portion of aid flows should be explicitly targeted towards helping to build up that capacity.

One example cited by the report involves trade. Aside from improving access to their own markets for African exports, donor countries should give more “aid for trade,” to help Africans overcome their “lack of trade capacity and competitiveness.”

The G-8 summit meeting in July will provide an important occasion for further movement on aid flows, debt relief, market access and other issues crucial to Africa. “This will be a historic opportunity for the G-8 to demonstrate its political will,” said Mr. Mandela. “Africa and its people expect nothing less. We mean it when we say: Africa’s time has come.”